Indonesian President Joko Widodo, wearing traditional Balinese attire, attends a ceremony to celebrate Indonesia's 74th Independence Day at the presidential palace in Jakarta, Indonesia on August 17, 2019. He has tried to stop speculation about extending his term. Photo: AFP / Anadolu Agency / Anton Raharjo

When President Joko Widodo first mentioned the concept of an “omnibus” law during his inauguration speech last October, many mystified Indonesians couldn’t find the expression in their dictionaries.

Since then, without any perceived need to localize the spelling, it has become the latest buzz word in the country’s political lexicon and in the minds of some politicians a cure-all measure that critics say risks over-stepping the mark.

The idea was first mulled over by Widodo’s previous economic team, but what started as a single law aimed at amending problematic legislation across a range of sectors has now morphed into at least three bills on job creation, taxation and small and medium enterprises (SMEs).

All of them, with some troubling exceptions, are aimed at removing regulatory roadblocks and attracting more foreign investment as Widodo pursues a dream that he hopes will see Indonesia become an advanced country with a per capita income of US$3,200 and a gross domestic product of $7 trillion by 2045.

The original idea for the legislative strategy is believed to have come from current Agrarian Minister Sofyan Djalil, a graduate of the US Fletcher School of Law and Diplomacy who served as economic coordinating minister and national development planning minister in the previous Widodo Cabinet.

Agrarian Minister Sofyan Djalil is believed to be the architect of the ‘omnibus’ reform drive. Photo: Facebook

It was former Investment Coordinating Board (BKPM) chairman Thomas Lembong who let it slip three days before the October 20 inauguration that major new moves were under way to boost Indonesia as an investment destination.

“The program is ready,” he said, giving few details but stressing the urgent need for Indonesia to improve productivity and the quality of its human resources. “Just wait for the new Cabinet to run straight away and immediately hook up with the program that has been prepared.”

The logic behind it is inescapable. Amending each of the respective laws would be a laborious and even prohibitive process, not only because of a staid bureaucracy and the special interests involved, but most importantly because of Parliament’s notoriously slow work ethic.

“It would take 50 years to revise the laws one by one,” Widodo said this month, without a hint of implied exaggeration. “If Parliament can move quickly, this will be a big leap forward for our services to the people, businesses and small and medium enterprises which can contribute significantly to the economy.”

The first omnibus law on “job creation,” which Widodo wants passed in 100 working days, is far more than that. It is aimed at amending, at last count, 1,244 articles in 74 existing laws, the most controversial being proposed changes to the 2003 Labor Law.

The government is still sending mixed messages, but if it is to address the key concerns of investors and the wider business community it will have to change the method of setting the minimum wage and also make it easier to hire and fire.

Ironically, it was the leader of Widodo’s Indonesian Democratic Party for Struggle (PDI-P), Megawati Sukarnoputri, who rushed the law through Parliament in a losing effort to win the 2004 presidential election. In doing so, she left behind a legacy her successors have been unable to erase.

Workers at the PT Gaya Motor manufacturing facility where Mini automobiles are made in Jakarta, Indonesia, September 6, 2018. Photo: AFP Forum via NurPhoto/Dasril Roszandi

Mild by any standard, street protests forced then-president Susilo Bambang Yudhoyono into full retreat in 2006 and again in 2013 when he made a half-hearted effort to scale back what still remains the highest rate of severance pay in the Asian region.

In a country not known for the productivity of its work force, the severance issue makes it virtually impossible to lay off a permanent employee. That has turned off potential foreign investors and encouraged employers to avoid new hires and use rolling contracts to outsource much of their extra work.

The government will always have an uphill struggle trying to convince union leaders that changing the rules will bring in new investment and create thousands of jobs that are now going to Vietnam and other neighbors with more amenable labor laws.

While Widodo’s ruling coalition controls 74% of the seats in the House of Representatives, it is already clear that even populist PDI-P legislators are siding with the unions in demanding more transparency and formal hearings to consider the reforms.

Still fresh in many memories is the secrecy in which the old Parliament pushed through key last-hour changes to the Anti-Corruption Commission (KPK) Law, which protestors say have effectively robbed the country’s most admired institution of its previous powers.

Apart from labor, the job creation omnibus bill is grouped into 10 other clusters which address such issues as licensing and land procurement, ease of doing business, small and medium business empowerment, research and innovation, new economic zones and government investment.

Widodo is also intent on streamlining Indonesia’s bureaucracy, which presides over a dense thicket of 42,000 often contradictory regulations. “The simplification of the bureaucracy must continue in a massive way,” he said in his inaugural speech. “Long procedures must be cut short.”

Indonesian civil service workers out for a stroll. Photo: Facebook

The president’s well-known impatience with the civil service and its impediment to economic growth can be seen in the way he has already directed the trimming down of Echelon III and IV staff and replacing them with artificial intelligence.

Among the proposed revisions in the tax omnibus bill are an across-the-board relaxation of income tax and the scrapping of a controversial requirements under which overseas Indonesians and foreign residents are required to pay tax on global income.

Although the government plans to introduce a new digital economy tax on Internet companies such as Netflix, Amazon and Spotify, it intends to eliminate dividend tax for firms with an ownership stake of less than 25% and also gradually reduce corporate tax from 25% to 20% by 2023.

It is still not clear whether proposed changes to the 2009 Mining Law will be included in what is being called the “big bang” program. While there is no obvious cluster into which mining fits, what Widodo wants he is likely to get, even if the politics get messy.

Most attention is already on an amendment that will revoke a provision in the law under which a 15,000-hectare restriction is imposed on the concessions of private firms when they convert their expiring contracts of work (COW) to a new Special Business License (IUK) regime.

Underlying that has been past efforts by the State Enterprise Ministry, under controversial former minister Rini Soermarno, to take over the balance of the concessions, currently operated by some of the largest private sector coal companies.

In the days before the old Parliament rose for the last time, members of the mining commission defied Widodo and then-House Speaker Bambang Soesetyo in vainly trying to get the newly revised legislation through a plenary session of the outgoing House.

Birds eye view of Indonesia’s Parliament in a file photo. Photo: Facebook

That move failed, but perhaps not for long given the influence wielded by such heavy hitters in the $32 billion coal industry as Bumi Resources tycoon Aburizal Bakri and Garibaldi Thohir, president director of second-ranked Adaro Energy and brother of new State Enterprise Minister Erick Thohir.

Mines and Energy Minister Arifin Tasrif, a favorite of Megawati and her daughter, House Speaker Puan Maharani, has reportedly been tasked with reviving the oil and gas sector, leaving mining to Hartarto and Maritime Affairs and Investment Coordinating Minister Luhut Panjaitan.

A trusted Widodo political adviser, Panjaitan is in charge of guiding Chinese investments, including two giant nickel projects in Central Sulawesi and the Maluku island of Halmahera, and other planned aluminum ventures in Kalimantan.

Leave a comment